Higher Over-the-Counter Access pricing, combined with stronger cash market levels set the tone at the New York Mercantile Exchange early yesterday, and bull traders did not waste the opportunity to pressure the natural gas market higher. After gapping up 6.5 at the opening bell, the April contract tested recent highs at the $2.50-51 mark before closing with a 12.9-cent advance on the day at $2.488.

Traders continued to point to the high relative value of cash versus futures prices Monday as a reason for the strength in the futures pit. On Friday, the spread between the March Henry Hub cash price and the April futures price was about 13 cents and some traders feared that the cash market would move lower early this week to fall in line with futures. As it turns out, just the opposite was the case Monday, as Henry Hub cash prices reacted to a second wave of cold temperatures in the East and Midwest by rocketing 19 cents higher to $2.68, according to NGI’s Daily Gas Price Index. The cash-futures spread wound up the day at 19.2 Monday, 6.1 cents wider than Friday’s basis.

Looking at the forecast calling for moderating temperatures throughout the week for much of the Midwest and Eastern portions of the nation, traders question how long prices will sustain these levels. With frigid temperatures expected to moderate as early as today in such southern climes as Georgia and Alabama, many sources polled by NGI believe prices could tumble this morning. However, several traders pointed to a king-sized helping of bullish data that is likely when the American Gas Association releases its weekly storage report Wednesday. Preliminary estimates center on a 130-160 Bcf withdrawal, which would dwarf last year’s comparable 73 Bcf tally as well as last week’s 64 Bcf draw-down.

In daily technicals, April’s outlook is mixed. Bulls remain in control following recent advances and the gap higher opening this week. However, a failure to press the market above its two-month high at $2.51 would be viewed as a sign of weakness, leaving the door open for a sell-off. For this reason, Tom Saal of Pioneer Futures in Miami suggests selling the market up to the $2.51 level but quickly reversing that position if the April contract can settle above $2.51. Additional resistance is seen up to the Dec. 31 chart gap at $2.55 left by the lower open on Jan. 2.

To take advantage of the market’s potential downside move, Jay Levine suggests aggressive option players could look to sell April $2.40-60 calls and use the proceeds to buy April $2.10-30 puts.

Cold Temps Too Little Too Late, at Least for the NWS

While not too late to impact natural gas prices, this recent blast of cold air comes too late to be included in the three-month period from December through February used by the National Weather Service to designate winter. As a result, this winter will go down as one of the warmest on record for many states in the Northeast U.S. “It’s probably as warm as they get,” said Paul Kocin, of The Weather Channel. “I’m sure they will be studying the mechanisms for the warmth of this winter for some time to come.”

It was the warmest winter in New Hampshire in 122 years; and the second warmest winter in 134 years, when records began, according to The Weather Channel. Meanwhile neighboring Vermont experienced the warmest winter on record, with temperatures in the state’s largest city of Burlington averaging a balmy 28.7 degrees. In Syracuse, NY the 3.5 feet of snow this winter palled in comparison to its average 12 foot accumulation.

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